June 1, 1981
By John S. Yodice
One of the most persistent legal problems about which we receive letters involves the condition of a used aircraft after a sale. Too often, an aircraft turns out to be in poor condition, and the buyer feels that he has been cheated. The seller insists that he knew nothing about the defects or damage, and, anyway, he sold the aircraft as is.
The issue usually is resolved into what promises or warranties were made or implied at the time of the sale, or whether the aircraft was sold as is, without any warranties. Not enough effort is made at the time of sale to document these promises or warranties. An after-the-fact determination is difficult and often leads to litigation. The results of this litigation are instructive to those who buy or sell a used aircraft.
In February 1978, I reported on a very significant Florida court decision ("Washington Counsel," p. 64). That case has been interpreted to mean that anytime a seller shows an aircraft's logbooks to a buyer prior to the sale, it constitutes a warranty that the logbook entries are accurate. Even if the seller is ignorant of the fact that the logbook entries are wrong, the seller still is liable under the warranty.
The Florida case involved the sale of a 1956 Cessna 172. According to its engine logbook, the engine had been given a major overhaul less than a year before the sale. Several months after the sale, the new owner experienced engine failure on takeoff, fortunately without injury to the owner or damage to the aircraft. A subsequent teardown proved that the overhaul had not been performed properly.
The buyer sued the seller. The seller defended on the ground that he never warranted, in so many words, the accuracy of the logbook entries. Furthermore, he said that he did not know that the entries were wrong and that the overhaul had been performed improperly. The Florida court held that the mere showing of the logbooks constituted a warranty and also that the warranty binds the seller, even though he did not know that the logbooks were wrong.
That case left open the question of the effect of a sale of an aircraft as is, after the potential purchaser has been shown the logbooks. This question seems to have been answered by a recent decision of a federal appeals court in St. Paul, Minnesota.
The case involved a 1965 Mooney, which had been landed gear up twice, then purchased in damaged condition. The new owner had the airplane towed to his hangar at an airport near Tucson, Arizona, and had it repaired by his son and another mechanic.
The repairs were quite extensive, including replacement of the engine, the wing and belly skin, fairings, a bulkhead and a former assembly. Extensive repairs also were made to the landing gear and the structural rim in the right wing. These repairs were itemized in the airplane's logbook.
The mechanic (not the son) who did the work held an IA (inspection authorization), and he inspected the aircraft and signed it off as airworthy. A year later, another mechanic who held an IA inspected the airplane and found it airworthy. The operator flew the airplane frequently after it was returned to service.
The operator then sold the airplane to an Iowa flying club. During the negotiations, the gear-up landings were disclosed and discussed. Nevertheless, the operator described the Mooney as a "nice little airplane" and "a good little airplane."
A flying-club member and another pilot arrived in Tucson to consummate the deal. They visually inspected the airplane, reviewed the entries in the logbooks and discussed the two previous gear-up landings. The operator suggested that they have the airplane inspected and certified before returning to Iowa. But, the buyer and his companion were anxious to leave and indicated a preference for having the inspection done in Iowa.
The buyer paid the operator $14,200 for the airplane, and the operator delivered a bill of sale. At the operator's request, the flying-club member signed a separate, typewritten document that stated, "After inspection and trial flight, which have met with my approval, of Mooney N7875V, I have agreed to accept the aircraft on an 'as is, where is' basis for the amount previously agreed upon."
The airplane was flown to Iowa. During the next six weeks, the airplane was flown 16 to 18 hours, and no problems arose. The airplane then was taken to Clinton, Iowa , for its annual inspection. It was found to be in terrible condition; the repairs had been done improperly. It was grounded and then ferried, on a special permit, to a Mooney dealer in Waterloo, Iowa, who confirmed the defects and poor state of repair. It again was ferried on a permit to Kerrville, Texas, where it was inspected by a Mooney expert, with the same results.
The flying club and its three members sued the operator, alleging fraudulent misrepresentation and breach of express and implied warranties. The fraud allegation was dismissed on appeal, but the appeals court sent the case back with some very interesting holdings on the warranty issues.
First, and very importantly, the federal appeals court, like Florida's, held that the showing of the logbooks constituted an express warranty of the condition of the airplane. In fact, the federal court cited the decision of the Florida court as a precedent.
The federal court made clear that the showing of the logbooks, including the airworthiness certifications and the buyer's reliance on them, became "part of the basis of the bargain [between the parties] as a description of the goods." It made no difference that the seller did not know that the airplane was not airworthy.
But, the most important part of the federal decision had to do with the effect, or more accurately, the lack of effect, of the as-is disclaimer. Remember, even after the seller exhibited the logbooks to the buyer, he had the buyer sign a statement saying that he was buying the airplane "as is, where is." The court said that this disclaimer related only to implied warranties and did not disclaim the express warranty (in the logbook) of airworthiness. "The disclaimer itself made no reference to the description of the airplane contained in the logbook," the court said. "The 'as is' clause, then, can fairly be read to disclaim all implied warranties, leaving the written express warranties of the logbook, including the warranty of airworthiness, intact."
This case has a very important lesson. To sell an aircraft without any warranty of condition, the seller must do more then have the buyer sign an as-is disclaimer. The disclaimer must state that it excludes both express and implied warranties, and it probably should say that it specifically excludes any statements in the logbooks. If the sale is to be with a warranty of condition, that warranty should be stated carefully and all other warranties of condition, expressed or implied, excluded.
John S. Yodice is Washington counsel to AOPA and a member of the Board of Trustees.
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